Imax Corp (IMAX) 2012 Q2 法說會逐字稿

Good day and welcome to IMAX Corporation second quarter 2012 earnings conference call. All participants are currently in a listen-only mode. (Operator Instructions) At this time I would like to turn the conference over to Ms. Heather Anthony, Vice President of Investor Relations. Please go ahead.

Good morning, and thanks for joining us on today's second quarter 2012 conference call. Joining me today is our CEO Rich Gelfond, our CFO Joe Sparacio, and Rob Lister, our Chief Legal Officer. Also here today is Greg Foster, our Chairman and President of Filmed Entertainment. We have uploaded a PowerPoint presentation in PDF format onto the IR section of our website this morning to help illustrate some points included in today's discussion.

I would like to remind you the following information regarding forward-looking statements. Our comments and answers to your questions on this call may include statements that are forward-looking and may not be obtained in future results or outcome. Actual future results may differ materially from these forward-looking statements. Please refer to our SEC filings for more detailed discussion of some of the factors that could affect our future results and outcome.

During today 's call, references may be made to certain non-GAAP financial measures as defined by Regulation G of the Securities and Exchange Commission. A discussion of Management's use of these measures, and the definition of these measures, as well as reconciliations to adjusted EPS and adjusted EBITDA are defined by the credit facility and are included in this morning's release. The full text of our second quarter release, along with supporting financial tables, is available on imax.com. Today's conference call is being webcast, in its entirety, on our website.

Before I turn the call over to Rich, I wanted to mention that I'm taking on a new role at IMAX. After four terrific years of heading up Investor Relations, it is time for a new challenge, and Rich and Joe were gracious enough to accommodate me. I will be reporting to Joe as the new Vice President of Budgeting and Financial Analysis. Joining us on the call today is (Carrie Lawson) joins us from Bristol-Myers Squibb, where she has worked for 11 years in various roles in strategy, finance, and most recently investor relations. We look forward to introducing Carrie in the weeks and months ahead.

With that let me now turn the call over to Rich Gelfond.

Thanks, Heather, and good morning, everyone.

While our second quarter of financial results is why we're here today, I would be remiss if I didn't take a moment to acknowledge our Company 's collective sorrow over the tragedy in Aurora, Colorado last Friday morning. We continue to send our thoughts and prayers to the victims, their families, the Aurora community, and our partners throughout the filmed entertainment industry.

We had a great quarter at virtually every level. Now, on to our specific results which reflected the impact of the global scale of our growing theater network, and resulted in healthy box office results that translated into strong second quarter earnings. This quarter, much like the first quarter, demonstrates how the network effect drives operating leverage and recurring revenues in our business model. In addition to our substantial earnings growth, and our expanding network, during the quarter we signed deals for 40 IMAX theater systems, our backlog grows sequentially, and our pipeline for future theater deals continues to be robust. Simply put, the fundamentals of our business are doing what they should -- driving our earnings growth. I will discuss these subjects as well as update you on some of our strategic initiative, but first let me review the second quarter financial highlights.

In the second quarter, we drove significant revenue and margin expansion across virtually every major business segment. Revenue increased 23%, to $70.2 million, from $57.2 million in the second quarter of 2011. This resulted in a 200% increase in adjusted earnings per share to $0.21 for the second quarter versus $0.07 last year. Second quarter EBITDA increased 80% to $29 million, trailing 12-month EBITDA increased 29% to $87.9 million, and cash flow from operations increased by $30 million year-over-year.

As many you know, we hosted our Analyst Day back in June. We began that day discussing the significant positive impact network growth can have on financial results over a five year period. We believe the first six months of 2012 reflect the leverage illustrated during that discussion. We also spoke about achieving critical mass, and the positive effect this can have on our earnings potential. Box office milestones are becoming much easier to achieve as our network grows, which is important because our model is all about operating leverage as our costs are relatively fixed. For example, five of our DMR titles grossed over $20 million apiece in IMAX in all of 2011. Through this past weekend, however, nine DMR titles have are already crossed cross this milestone so far this year.

Speaking of net network growth, we are pleased to report that over the last 2.5, years we have signed theater deals for 500 IMAX digital theater systems. Driving most of our signings momentum is our existing client base. IMAX is in business with the biggest theater operators in the world, and we are very proud that approximately 85% of our theater deals are with existing customers. We recently increased our estimate of worldwide IMAX zones to 1700 from approximately 1500. While the majority of that growth is to come from overseas territories, we did raise our domestic zone estimates to 485. And in fact, domestic, our highest penetrated market, has driven much of our recent signings momentum. In the second quarter we signed the largest regional deal ever, a ten-theater JV agreement with l with Frank Theatres. In Canada during the second quarters, Empire Theatres signed on for two more theaters, and in June we went live with our first test of a second screen location with Guzzo's Cinemas in Montreal, which enables this multiplex to showcase IMAX DMR titles in both English and French simultaneously.

Last week, we got the third quarter off to a strong start with our longtime partner AMC, who signed on to a firm 8 additional IMAX theaters, with the potential for 10 more on top of that. That these new sites are in the same terms as our existing JV agreement and will bring IMAX markets like Dearborn, Michigan, Anaheim, California, and Monmouth, New Jersey under their 10 year agreements.

Greater China continues to be our biggest and fastest growing market outside of North America. In 2012, our foot footprint is poised to grow 50% year-over-year,which is on top of 2011's 126% increase. Through the first six months, roughly 30% of our new theater signings were in China, including deals in the second quarter with Bona Film, Omnijoi Cinemas -- sorry for butchering that -- and developers Fanbo and Wandi. Fueling the interest from IMAX from Chinese exhibitors and developers is the outsized grosses our theaters consistently deliver in the marketplace. Through the first six months of 2012, our IMAX theaters in greater China have delivered box office per screen of more than $830,000 on average. At the end of June, there were 97 IMAX theaters open in greater China with a total of 132 in backlog. Of those 97, 78 are commercial theaters and approximately 40% of those are JVs with the largest international partner, soon to be the largest partner, and the largest cinema operator in the world, Wanda Cinemas. It was announced during the second quarter that Wanda is acquiring AMC theaters. We see this as exciting news for our friends in AMC who will now have an ownership structure that can infuse capital to the chain. And we know that Wanda is a savvy marketer, particularly as it relates to the IMAX brand.

The WTO agreement between US and China announced earlier this year is also beginning to have an impact in our business in the PRC. Our DMR fees on certain titles in the second quarter began moving above the historical rate of 6.5% and we expect to continue to make incremental progress on the increase of the DMR fee in China toward our global rate of 12.5% over time.

In the EMEA, Cineworld, one of England's leading cinema operators, signed a deal in the second quarter for four to five more theaters only five months after opening its first IMAX theater. Our team recently attended the Cine Europe industry conference in Barcelona and conversations are occurring with both new and existing exhibitor partners throughout western Europa. In Russia, our theaters continue to deliver strong per-screen grosses of approximately $1.1 million on average through just the first six months of 2012. At end of the June, 24 IMAX theaters were operating in Russia and the CIS with another 25 in backlog. In addition, many studios are now opting to release their titles in this market, with exclusive previews at IMAX, as was the case for the amazing Spider-man, Prometheus, Avengers and The Dark Knight Rises.

As we have discussed on past calls, IMAX strategic differentiation is a key strategic focus of our. Differentiation can mean different things -- filming with our cameras, utilizing our unique aspect ratio, exclusive marketing strategies, and early release windows. At its core, IMAX differentiation means that the moviegoers feels that they are a part of something special and unique that they can only get in IMAX theaters. At end of the day, our ability to offer these kinds of tools to our filmmaker, studios, and exhibitor partners, and ultimately the consumer, is how our brand sets itself apart and transcends to something beyond moviegoing. If you don't believe me, go see The Dark Knight Rises in one of the IMAX theaters today.

Which brings me to Warner Brothers' The Dark Knight Rises. We at IMAX have been extremely fortunate to work so closely with Warner Brothers and visionary filmmaker Chris Nolan to help bring his creative vision for the Batman trilogy to life. This epic finale brings IMAX differentiation to the next level, featuring 72 minutes of footage filmed with our cameras, by far the most footage of any Hollywood feature film to date. Needless to say -- and please forgive the hyperbole -- the experience of seeing this movie in IMAX is one that is truly unique in the world of entertainment, where you can literally shock the screen with your eyes and focus on the part of the action you want to. That is reflected in our grosses so far, which have been quite strong domestically and internationally.

More importantly than the near term financial results, however, it is the longer term impact of titles such as The Dark Knight Rises, which transcend a single quarter. Iconic IMAX films like this one have historically served as a catalyst for new theater deals and film deals that feature IMAX differentiation, which further fuel growth for the company over the long-term.

In addition to The Dark Knight Rises, we are proud of the our 2012 film slate that features more titles with IMAX differentiation than ever before. In Ridley Scott's Prometheus, and Mark Webb's The Amazing Spiderman, both film makers took advantage of our format and presented sequences inside our larger aspect ratio of 1.9 to 1 versus the conventional 2.39 to 1 ratio. That was exclusively in IMAX. Sam Mendes is taking advantage of the unique IMAX aspect ratio in Sony's Skyfall, which will begin its international rollout in October. Moviegoers can also experience a unique trailer for Skyfall which is currently only available at our digital theaters.

As 2013 comes into view, IMAX differentiation will play an even bigger role. In fact, 2013 will mark a very exciting milestone. It will be first year to feature at least two blockbuster movies with key sequences filmed with IMAX cameras. That is Paramount's Star Trek, and Lionsgate's Catching Fire, the sequel to Hunger Games. More and more filmmakers are embracing IMAX as a creative tool early on in the production process, and we plan to build on that momentum. We are in discussions with other filmmakers for titles that may utilize IMAX cameras in 2013 and 2014. Given the level of interest and curiosity coming from filmmakers, and conversations with studios, directors, cinematographer and producers, it's clear that we need to increase the number of IMAX cameras currently in circulation, and we are working on doing that.

Differentiation also comes from the projection side of IMAX experience. We are targeting the launch of our next generation laser projection system in the second half of 2013. As I mentioned on our last call, we have held demonstrations for several of our partners and as a result, we anticipate signing our first laser projector deal this quarter. In addition to that the many technical advantages of our laser projection, the financial benefits are also attractive, as this will be the first digital solution for 50 of our biggest commercial theaters that are film-based and unable to benefit from our full slate of DMR programming due to the cost associated with film prints.

On the marketing front, in the second quarter we launched our new brand campaign, IMAX is Believing. The theater roll out is complete across North America, Europe and China, with additional markets like Russia and Japan still to come. We believe it's still too soon to derive conclusive results. However, we are encouraged that early indications are positive. Importantly, our social media metrics are also showing extremely strong growth year over year across all our key measurements like engagements, fan growth, reach, and online presentations.

To wrap up, the core drivers of our business, a robust pipeline for new theater signings, healthy backlog, a growing network, and a strong film slate, are all working hand in hand right now. Following The Dark Knight Rises, our slate features a list of titles that should play well to our core audience including the Avengers, which opens in Japan in August. We look forward to the release of Sony's reimagination of Total Recall in select international markets. Universal's The Bourne Legacy will be re-releaseed in select IMAX theaters internationally. Resident Evil - Retribution, our second film in the franchise, opens worldwide in September. Sony's Skyfall, directed by Sam Mendes, begins its international rollout in October. We are in discussion regarding various titles to fill in the current slots open in late in November. And the year wraps up with the December release of Warner Brothers' The Hobbit, Catching Fire, and Warner's The Hobbit - There and Back Again. I'm sorry, The Hobbit is directed by Peter Jackson.

The 2013 film slate is also coming into focus with their pillars on our slate currently including Paramount Pictures' Star Trek 2, Warner Brothers' Man of Steel, Lionsgate's Catching Fire, and Warner's The Hobbit - There and Back Again. The increasing scale of our global network is providing wind at our backs, delivering substantial year year-over-year earnings growth which you clearly saw in the second quarter. A consistent pipeline of new signings is providing a stable backlog as we continue to build out our global platform at a significant pace. Strategically, we remain focused on IMAX differentiation, and we believe all of these factors will continue to drive our success over the long-term.

With that, I will turn the call over to Joe, who will review our financials.

Thanks, Rich.

As Rich highlighted, second quarter adjusted EBITDA, as calculated under our credit facility, increased 80% to $29 million and reflects over a 1300 basis point increase in terms of EBITDA expansion. Driving our growth were our recurring revenue segments, which increased 54% over the same time frame and represented 65% of our total second quarter revenues, up from 52% last year. We're reaching critical mass in our global network and it's driving growth in our current revenue segments which come at a higher margin than the nonrecurring revenue segments.

Looking at the business segments, JV revenue increased 87%, to $15.6 million in the second quarter, from $8.3 million in last year's second quarter, primarily reflecting strong box office performance in comparison to the prior year period, and the increase in the JV footprint. In total, we ended the second quarter with 274 JVs in operation, a 34% increase over the same period last year. DMR revenue increased 59% to $19.7 million from $12.4 million in last year's second quarter. Gross box office in the second quarter increased 61%, to $173.5 million versus $107.7 million last year, which demonstrates the powerful combination of network growth and stronger film performance.

Our second quarter global per screen average was $342,000 in comparison to $316,000 experienced in the comparable period last year. Second quarter revenues from IMAX systems were $18 million compared to $20.5 million last year. The decrease reflects the installation of 11 sales lease theater systems during the second quarter of 2012, all of which were new, compared to the installation of a total of 18 IMAX theater systems, 11 new, one used, and six up upgrades in last year's second quarter.

As discussed on our last earnings call, our second quarter results include a $400,000 charge related to the installation of certain equipment to some of our digital theaters which enabled them to play titles like The Dark Knight Rises in either film or digital format. This charge was included in our IMAX systems business segment.

Gross margin dollars increased by approximately 48%, to $38.8 million. As a percentage of revenue, gross margin increased by 930 basis points in this year year's second quarter to 55.3% versus 46% last year. The increase in gross margin was primarily driven by 128 increase in the JV margin and a 91% increase in our DMR margin.

Moving to operating expenses -- second quarter cash SG&A decreased 230 basis points to 23.7% of revenues compared to 26% of revenues last year. SG&A from operations was $16.6 million, compared to 14.9 million last year, which reflects the previously communicated 900,000 incremental run rate impact from our standalone infrastructure in China and a previously communicated $1.5 million increase in advertising and promotional expenses. Traditional stock-based compensation, which excludes variable share awards, was $3.7 million, compared to $3.2 million last year. Reported SG&A was $20.3 million. Variable stock comp had very little impact in the second quarter. We anticipate full year SG&A, excluding variable stock comp, of $82 million -- $69 million from SG&A from operations and approximately $13 million in traditional stock-based compensation expense. This implies second half SG&A expense, excluding variable stock comp, of approximately $43.4 million -- 37.1 million of cash operating SG&A, and $6.3 million of ongoing traditional stock-based comp.

Research and development expense was $2.5 million in the quarter. We currently expect full year R&D expense of approximately $16 million. This implies R&D expense for the second half of 2012 of approximately $10.9 million, $650,000 of which will be amortization expense related to our laser-based digital projection initiative.

I also want to highlight a $700,000 favorable adjustment made to our deferred tax provision due to changes in statutory tax rates which resulted in an effective tax rate of 25% for the quarter. Last year we had a negative adjustment to the provision of $400,000 for a similar reason which as a resulted in an effective tax rate of 41.8%. As a reminder, these tax adjustments impact only reported net income and EPS, not adjusted net income or adjusted EPS. For the year, we now estimate an effective tax rate of 31%, which includes cash taxes of $3 million to $4 million.

Just some final housekeeping items -- please note that in the second quarter we incurred charges related to receivables and inventory reserves totaling approximately $400,000. During the quarter we signed agreements for 40 theater systems and installed a total of 20. Our backlog at quarter end consisted of 280 theater systems, up sequentially versus the 261 at the end of last quarter, and compares to 294 systems in the year ago period.

The breakdown between system type is included in the back of our earnings release. For the third quarter of 2012, we expect to install 10 to 12 new sales of sales type lease systems. We also expect to install approximately 16 JV theaters in the third quarter.

Today we announce the increase in the number of theaters scheduled to install out of our current backlog for the full year of 2012 to approximately 110 theaters, comprised of approximately 50 sale type lease systems, and 60 joint revenue sharing systems.

Finally, as many of you are aware, our definition of adjusted net income currently excludes the impact of noncash deferred taxes and variable stock-based compensation. Beginning in the third quarter of 2012, the company plans to adopt a revised definition of adjusted net income, which will exclude all stock-based compensation, any one-time items and will be fully tax-affected. We believe that this revised definition should provide for a more straightforward and conventional calculation of our adjusted earnings. With that, I will turn it back to Rich for closing remarks.

Thanks, Joe.

In a period where no significant title comprises the significant portion of our revenue -- and I think that's a point worth dwelling on a second. It wasn't a quarter where there was one great break out title. There were a lot of doubles, it wasn't a big home run quarter. We are able to deliver a 200% increase in earnings. The combination of our growing network, signings activity, and consumer demand for the IMAX experience are driving recurring revenue, higher margins, and increased cash flows, and we look forward to building on this over the long-term.

Now, obviously, we step back and we hear a lot of things and the world is challenging place right now. We hear about a China slow down. We are not seeing it at IMAX, in fact, our same-store sales are up significantly. We hear about a box office slow down. We're not seeing it. Our same-store sales, both internationally and domestically are up significantly. We hear about a slow down in signings -- and where are they ? This quarter we had 40. We are not seeing it, and the tone of our business is extremely good.

So I would just like to end on the note by saying that our business is very strong. The quarter reflected that, and we feel very good going into the future. With that, I will open it up to questions.

(Operator Instructions). Our first question comes from Townsend Buckles of JPMorgan. Please go ahead.

Thanks. Rich, on the pipeline for new screen deals, given that you have signed a lot of new screens in the last few months, can you help us gauge the number of deals in play now versus the last update during your investor day, and also how you see the conversion cycle of a title like Dark Knight translating to bringing in new exhibitor partners. Is it already generating new discussions?

I'm sure, Townsend, First of all, it's not generating discussions yet, because people are waiting to see the box office. As I said during my remarks, the box office domestically has been very strong. Somewhat of a surprise to us so far is the strength of the international box office because the Dark Knight, the original one did about two-thirds per screen of what the office did domestically. The early international results, remember we opened it only half of screens right now are showing that, if anything, the international box office results are stronger than the domestic box office results. And as you know, that's a place that we are more underpenetrated. I don't really know the timing of the accounts and that is very difficult to calculate. But obviously that over performance internationally bodes well for screen growth for us.

On your second question, the tone of the business, I would say probably -- at Analyst Day we were very bullish on the amount of inquiries in the level of business activity, and as we said for the quarter we signed 40. So far this quarter we have about ten in the bank. I would say I feel the business activity is just as strong. If you took away, the more or less 50 that we signed since then, I feel the tone of the business is pretty much the same. In China, we probably got discussions going on for somewhere between 50 and 100 systems. And again, let me caution, they're definitely not all going to happen. There's no way. In western Europe with the changes, we put in place there, you know activity is better than it's been in years. In north America, somewhat, surprisingly, given how penetrated we are, the activity is high. In South America, which you know is a strategic initiative for us, I think we're still in a building phase there, but it's certainly better than it was a year ago. So in general I'm feeling good about the tone of the business.

And does your 2012 install guidance and backlog include the deals you have signed so far this month?

To some extent, not to a full extent.

Okay, and finally for your institutional screens playing Dark Knight, can you talk about how those are performing versus your commercial screens, and can we see them used more often for your major releases?

Do you want to answer that, Greg?

Sure. This is Greg. They are performing very, very well. Part of reason that they are is that they're film-based and as you know that's a particular specialty of Chris Nolan, so they have been designed to take advantage of the way he shot and put the film together. With that said, the marketing support that we have also received from our institutional partners for a title like The Dark Knight Rises has been very strong, as well as obviously the support that we have from companies like Regal and AMC, et cetera. But the institutional theaters are performing at a very strong rate on The Dark Knight Rises.

Greg, do you expect to use them in future releases?

We have been using them. We haven't had a robust as a use of them as we have for The Dark Knight Rises. Again, that is because the film system is such an important part of the design of the film. We love having them being a part of appropriate titles, and will continue try to encourage that as often as possible.

Great, thank you.

Thank you. The next question comes from Rich Ingrassia of Roth Capital Partners. Please go ahead.

Good morning, everybody.

Hi, Rich.

Rich, any progress toward finding a joint venture partner in your Russia, maybe an update on that market in particular?

We're not really looking for a joint venture partner in Russia, Rich. If you mean in terms of activity going on and potentially future signings, it's still a pretty hot area for us. As I think I mentioned on the call we have 24 theaters open, we have 25 theaters in backlog, and between Russia, the CIS, places like Georgia and the Ukraine, there's an awful lot of activity going on over there. The per screen averages in Russia are up over last year fairly significantly. Our partners are pretty happy. And there's a good level, but we're not looking for one JV partner. We are in discussions with a number of chains.

Okay. Fair enough. And an update, maybe on any additional progress in the second screen initiative?

Yes, I mean it's a little bit complicated, Rich. First of all, the one we did with Guzzo in Montreal, where it's one theater but two languages, seems to be going pretty well. The grosses are pretty good. So that the first test, albeit not exactly a representative test, is working pretty well. I think I said a the last call that I just don't see that as that large an opportunity. And the reason is because you have to have a second large screen, the same size as the first screen. It has to be in certain markets where you really are dealing with capacity issues. But we have recently been meeting with all of our major clients and we have discussed it. There are some technical issues, so I don't expect it to happen in the short run, but it's an ongoing discussion. I just want to be careful to caveat, it's not a pot of gold. If it happens, we can probably do it in a couple of dozen theaters or something like that. I think it will happen eventually, but it's not going to happen tomorrow.

Okay. I appreciate the candidness there. You've got enough penetration, I would think, of secondary and tertiary market, if that is the right way to describe them, now that you have data to speak to. Is there anything important to note about how the IMAX theaters are performing in markets outside urban centers, major urban centers.

Two of our most successful theaters in North America, maybe the world, are actually with Warren Theaters. One in is in Oklahoma City, and the other one is in Wichita, Kansas. They're both among the top 10 theaters in the country when they have IMAX releases in them which is kind of remarkable. Part of the reason is that the operator, Bill Warren, really works the marketing extremely hard and that makes a big difference.

It's not just in the US. One the questions we get frequently is about China is what about third-tier cities and we are seeing very good results out of there too. I don't think it's only the marketing, I think there's more a lack of entertainment options in some of those cities. I think it's a little bit like a baseball team kind of thing. In a place like Cincinnati, the Reds are really a big deal. I think in some of those markets like Wichita and Oklahoma, having an IMAX theater is a big deal, and I think you can over-index at those places.

Got it, okay. Thanks, and congrats on the promotion Heather.

Thank you, Rich.

Thank you. The next question comes from James Marsh of Piper Jaffray, please go ahead.

Two quick questions.

First, Rich, you mentioned you were poised to sign your first laser deal, maybe in the current quarter. I guess with the deal so close to signing, I have a pretty good idea of how you might price that projector. I was wondering if you could give us some kind of range to think about on the laser side.

Second, I was hoping you could drill down a little bit on The Dark Knight Rises performance -- what metrics are you looking at currently. It seemed that the Saturday to Sunday hold was pretty strong, but what are your expectations throughout the rest of the week and into the weekend. Thanks.

So first on the laser. It's actually quite interesting, James, when you get into it. It's a very interesting question. It wears on the current system, no matter what size the theater is, the price is the same because you have a digital projector that delivers an image. If it's 50 feet wide or it's 70 feet wide it's the same price. In the laser world it takes more lasers to light a 100-foot screen than it takes to light an 80-foot screen. So there won't be uniform pricing in the laser world. It will really depend on the size what the screen is. Laser prices are fairly high right now. So I think if you looked at us pricing a big screen right now in today 's environment, it would have to cost more than our existing digital projector, but I think we expect as lasers become more prevalent the cost will come down, like any technology cycle. And I think, eventually which is probably years and years from now, when you start to engineer our product for a screen analogous to the current existing network, digital-based, not film-based, you will see the prices in the same area where they are today. But I think in the interim for those big film-based theaters -- I guess I have to remind everybody because most of you weren't around -- like the Lincoln Squares, the Metreons -- those systems originally cost close to $2 million or in that neighborhood when those film systems were built to throw out that kind of light and that kind of power. Although we haven't set our final price, I would expect it to be less than the film systems.

That is helpful, thank you.

And the second thing on The Dark Knight -- the weekend, just, obviously the tragedy was so horrible for everyone in the industry, that that was the first thing we focused on. Once we took a step back, and we looked at the numbers, I mean, we were at capacity virtually everywhere in North America. And you know, the movie itself may have done less than people predicted, but we did the same or better than we predicted internally. Internationally as our per screen average, and domestically our per screen average was $57,000, which meant that virtually every show was a sell-out, not completely but virtually. Internationally, we did $75,000 a screen, and that is a market which for the last Dark Knight -- did, I'm trying to remember, but it was around $40-something thousand or like that, James, I could be off a little bit. But it did much better than the last franchise.

The weekday numbers so far are holding up extremely well. On Monday we did 16% of the U.S. domestic box office, and we did $3 million, so we did around $1 million internationally. It's doing really well for us. In terms of defining our expectations which is your original question, I think we have, we started with high expectations and you know, we still have high expectations for the movie. I think that from what I have seen at the moment it looks like maybe international will be a little bit better than we thought. Maybe some of the fallout may make domestic flatter than we thought, but we're still feeling really good about where we stand.

Thanks a lot, Rich.

Thank you. The next question comes from Ben Mogil of Stifel Nicklaus. Please go ahead.

Hi, good morning. And thanks for taking the call. And Heather, to Rich's comments, congratulations on your promotion.

Rich, I wanted to talk to you about China a little bit. So you've got 132 screens in backlog. Are you seeing any pushing out from screens that were supposed to be installed in 2013 into 2014 and beyond as the real estate environment there continues to fluctuate? Certainly, some of the lodging guys have been talking about development slowing considerably. Are you seeing any kind of pushing around the schedule, if you will?

We haven't yet. With our core client Wanda -- they are pretty button-down and pretty far along in the build out schedule. I don't really expect to see much of that. To give you an example, there are 49 Wanda malls and we're in 47 of them. So they have, you know, they're not an office construction, they're not in commercial construction, they're developing malls for the growing middle-class. And that is where a lot of our theaters are. In the Wanda area, we haven't seen much slippage. In the non-Wanda backlog, I don't feel qualified to address that, because I haven't had specific discussions. But I haven't heard of a lot of that going on.

Okay, great, thanks. To the second question, and I don't want to get too much into the weeds about the screen installation, et cetera, but I think you made a comment to Townsend's question earlier that the guidance we have got for the year now includes some, but not all of the screen deals which have been signed this month. Is that because some the deals that were signed recently are really 2013 installs? Or are they 2012 and everyone is trying to figure out the logistics around that?

Well, I will answer in two ways for you. One, like in the AMC deal, they guaranteed us certain amount of installs this year, but they have capex approved for more than the number that they guaranteed. So we put in only the number they guaranteed. We didn't put in the ones for the capex that they have approved that we think are going to be installed but they're not confirmed in the contract from backlog. We have also got a couple of other deals that we haven't announced yet that have signed this quarter and we haven't looked at how they affect our guidance.

And our last question, and this is more for Joe. A big spike up for D&A for the quarter -- is that the beginning of the Kodak patents being amortized? Or is there one-time things, I'm trying to get a sense of at what we should be looking at from a D&A perspective.

I think what you're seeing roll through there, Ben -- we can look at it in more detail offline. But it's the depreciation of the equipment on the JVs as that network continues to grow. In addition we had a lot of titles in DMR the past quarter. So you have amortization of the production cost as well.

That's great. If I have more questions, I will talk to you on our follow-up call.

Thank you. The next question comes from Eric Handler of MKM Partners. Please go ahead.

Yes, thank you for taking my question. Two things for you.

First, Latin America -- you restructured your agreements down there at the beginning of the year. Outlook looks good. It does seem like things are a little bit slow going in that region right now, with the Brazilian real falling so much relative to the US dollar. Is that one of the issue or are there some other gating factors with regard to Latin America right now?

And then, secondly -- with regard to AMC now that Wanda has full approval and they are moving forward in closing this deal, I wonder in the new deal that you have signed, does that also include some stipulation that Wanda puts some incremental capex into some of their IMAX signage that they have or something in order to improve some of their theaters.

In your question, Latin America -- Eric, we signed the amendment in January. And I think I was quite clear that there was a transition period that was going to take place. And we're in the midst of that transition period. So, not to be either glib or obnoxious about it, we don't snap our fingers and all of a sudden we have an infrastructure in Latin America, and we start signing tons of deals. It takes a little while to get up to speed. We put together a plan, as a matter of fact, I spent some time yesterday with our team working on it. We are looking at hiring additional resources on the ground. Our plan involves both real estate developers, and in Latin America as well as exhibitors in Latin America. There are 60 malls under construction in Brazil right now. We're executing on our plan. There are lots of discussions going on with lots of exhibitors and some real estate people, and I think in due course it will pay off.

It's not just because I said strategically we want to go into Latin America I could snap my fingers. The most encouraging thing is I think we have five theaters open in Latin America, in Brazil, including two or three that opened this year. And they are just knocking the covers off the ball. Cinépolis opened one just a couple weeks ago in one of the best malls in all of Brazil. One of the things that we say is precursor success to a country or region is reference theaters. In Brazil virtually all of our theaters are reference theaters. That is a good sign. I still feel good about territory but I can't predict whether it's this quarter or it's going to take a while longer to happen.

In terms of AMC, my understanding is that AMC has all of its approvals but that Wanda has a few to go in China, so I don't think it's fully approved. I think it will go through, from everything that I heard. But I don't think that -- AMC is still operating as it did before, the deal isn't closed. So I don't think Wanda's capital commitments, of which I understand there are some, had anything to do with the deal we just did.

Great, thank you.

Thank you. The next question comes from Aravinda Galappatthige of Canaccord Genuity. Please go ahead.

Good morning. Thanks for taking my questions. Rich, my first question is Japan. It's been a market that has done well for you guys in the past in terms of strong PSAs. It's slowed down in recent times for obvious reasons. I was wondering if you have any comments in that market, if there's any potential there for signing to reignite there.

There is some potential, Aravinda. We had a team there a couple of weeks ago. As you prefaced your question, I think as you probably know, Japan has been pretty slow to recover from the tsunami and the earthquake, and the exhibition business isn't an exception to that. Japan was on a tear for us. I don't really see it resuming that tear because of the macroeconomic issues. But I think that there will be signings to come out of there. Our theaters seem to be doing pretty well. We've had some good discussions, and I think you will see business come out of there.

Our second question, there seems to be conflict of the release of Dark Knight in China clashing with Spiderman, supposedly August 30. I was wondering if there's any insight you can add to that?

I'm going to ask Greg to do that.

The dates are not confirmed. Until the dates are confirmed, you can't rely on anything, especially innuendo. Obviously, it's something that we know that Sony and Warner Brothers are likely spending a lot of time addressing, but it's really their issue and we will follow through with whatever happens with them. But the dates have not been confirmed. I believe that we are cautiously optimistic that things are going to work out with those movies getting into the country. Until it's official, it's not official.

Thanks for that. And my last question is for Joe. On SG&A guidance, when we look at the SG&A numbers that we've seen ex-stock-based comp for the last couple of quarters, the guidance does imply a meaningful uptick on Q3 and Q4. What exactly are you expecting that would create that uptick?

There some timing items, and I think the level of spending on advertising and promotional areas is one of those areas.

Thank you very much. I will leave it at that.

Thank you. The next question comes from Steve Frankel of Dougherty and Company. Please go ahead.

Good morning. Can you tell us where the network stands today between the split between international and domestic screens. And what were the individual PSAs on domestic and international in the quarter?

Joe is fishing that out, Steve. Just give us a second.

So, commercially, at the end of the quarter, we had 529 commercial multiplex theaters, and 309 of them were domestic with the remainder international. And then on the PSA side for the quarter, the overall, as I mentioned on the call were $342,000. Domestic was $254,000. And international was $477,000.

Great, thank you. That is all I have.

Thank you, Steve.

Thank you. The next question comes from Jim Goss of Barrington Research. Please go ahead.

I was interested in focusing a little bit on the contract flexibility issue. It seems to me that has been one of big differences between this year and last year where you have been able to say, gain a week of Hunger Games where it wasn't originally on the schedule or some the other of the other movies might have a similar variability on the runs. I was wondering if you can discuss that, and also put in context what the arrangements are for The Dark Knight Rises. I think you said there was perhaps a five to six week block out that there was potential for it. Do you think you will use all of that? Can you use more than that? And what would come next after that, according to current plans?

Jim, what we announced on the call was internationally we're doing both Total Recall and Bourne Identity at different territories -- international territories and not domestic. What will happen is if The Dark Knight doesn't hold up in those territories across the whole six or eight week period of time, we will swap those movies in. International has a lot more flexibility than the US in terms of screen sharing. It may be that in some of those territories -- and by the way Bourne and Total Recall are largely in different territories. So that gives us flexibility internationally. We will see had what happens there. Domestically The Dark Knight is performing extremely well. It's performing exactly as we predicted going into it. I think it's going to have a long run. Greg will comment a little bit more on that in a moment.

The other thing I was talking about was flexibility in general. I think that both our studio partners and our exhibitor partners have noticed that if something is working well, they have been more flexible of letting it stay on the screen. If something isn't working as well, they have been more flexible in letting us to put something in its place. I think that flexibility among our partners has enabled us to maximize box office during the quarter. That was a little bit of the point that I was making during my concluding remarks, was if you go back to the second quarter. Going into it, it wasn't a quarter for us of amazing blockbuster hits. It was a quarter where we had a number of films that played pretty well. Because the growth of the network and the size of the network, we were able to deliver the excellent financial results we did. I think that is probably a maturation process of both our relationships with the studios and the exhibitors, and everyone being more understanding and flexible.

I will let Greg address The Dark Knight a little bit more.

Two things -- first of all, on the flexibility issue for the end of the summer. The titles that we announced today of Total Recall and Bourne are titles that open in the international select marks markets that we're going in later in the year. So they're not titles that open in next week. Total Recall opens domestically on the third of August, and Bourne identity is a week later. These are titles that open in the end of August into September and some even into early October in the territories that we're going with. So the point is, we're all in for the time being on The Dark Knight Rises.

With that said, as Rich pointed out, the performance of The Dark Knight Rises is working very, very nicely. On the flexibility side, I think it's in terms of how the other studios are responding to our schedule and the way we move things in and out at times. I think it's important to remember when The Dark Knight Rises opened, Rich says this all the time. Sorry, when The Dark Knight opened in 2008, we had 140 theaters playing the film. This time when The Dark Knight Rises out in all of the territories, take China out, it will be approximately 500 screens. Because of that leverage, there's much more understanding and flexibility that it's around world basically. If a movie is not performing, everyone understands that another movie at the right time will go in. And when the same thing happens to your studio that same kind of flexibility will be shown. Everyone is working as partners which is the way it is supposed to be.

And just a couple of other details. Third quarter to date IMAX gross office, I guess these first four weeks, can you tell us what that is to this point?

Jim, we don't release it on that basis. We will do a mid-quarter review. We will release the number at mid-quarter as we always do.

And last lastly any -- where are you headed in terms of numbers of international DMR films for this year and next year?

International DMR films for this year and next year? Greg, why don't you --

Probably a minimum of five and it could be notably more. China in particular will have the focal point of our DMR titles. We have already announced CZ12, Chinese Zodiac. There are some other titles that are forthcoming, especially during the December/January period. I think over the course of the next 12 months, we can comfortably say that we will have at least five international DMR titles. If I were a betting man, I would probably suggest one or two more.

Okay, thanks.

Thank you. The next question comes from Vasily Karasyov of Susquehanna Financial Group. Please go ahead.

All right, thank you very much. Good morning. Rich, so you are halfway through the year now, and this is the year when you changed the release strategy. Looking back at the past six months, is there anything you should have done differently? And looking at the second half of the year, you have arguably smaller films coming now. Anything that you learned from the first half that you can apply to the second half? And do you think it's working well enough in your mind for this to go into 2013 and 2014 and so on.

Given on the box office and our earnings today, our strategy is working very well. Given that we're up so much, virtually everywhere in the world, I think, yes, I think it's working. What I would learn -- in a way that is almost like saying, if you are the coach of a Super Bowl team, you would do more plays that worked and you would less plays that didn't work. So, I wish I had film prints for Avengers and Hunger Games, and if I had to do it over again, I would have film prints for Avengers and Hunger Games. It's the movie business, though it doesn't work that way. You can't after the fact say, I wish I had more of the winners and more of less of the losers. You look at as it as a whole. I think in terms of managing a portfolio, I think we did a very good job. We're ahead of budget, our box office is way up, our earnings are really good. Of course, I would do things differently with the benefit of hindsight. But on balance, I think we did a pretty good job.

In terms of the second half of the year -- we have Bond, and we mentioned Bond has a special aspect ratio, that Sam Mendes special trailer. We are expecting really good things from that. We're still choosing a November title. We're in the middle of doing that. We have got The Hobbit and some of our intermediate movies like Resident Evil and some of the international ones we have added today. No, I think we're in good shape. If I think if I was looking at the schedule today going forward I would be exactly where I am right now. On the other hand, I guarantee you if you ask me this question in March, I will tell you I would have done it differently.

I will remember to do that. Thank you very much. [Laughter]

Thank you.

Thank you. The next question comes from Marla Becker of Hudson Square. Please go ahead.

Thank you. I'm actually going to switch topics a little bit because we spent so much time talking about the film slate. Excuse me. It's really early in your new branding massaging, but have you gotten a sense yet of what the impact of the new massaging has been, number one, and number two, how do you plan to leverage that going forward in addition obviously to putting more butts in seats?

It's early, Marla, but I can tell you, at first level maybe the most important things is that our partners buy in. Whether it's Wanda in China or Regal in the United States, or whether it's the Smithsonian Institution in Washington, on a worldwide basis our partners really like it. The way that has had a positive impact is they have actually put their own marketing dollars into it and their own incremental spin. They have put together their own campaigns leveraging off it and I think that will have a positive impact in terms of putting bums in seats. In long-term we will be able to measure that, but it's harder to measure that in the short-term. The only way we can measure that in the short-term is the media social media awareness and pickup. We have gotten a good feedback and we've gotten a fair amount of increase in terms of access to the social media. We feel good about it today, but as you know marketing campaigns you can't really judge over a couple of months. It takes a longer frame than that.

Right. Then I have one housekeeping question. Getting back to the question of Dark Knight how it's currently scheduled to be in IMAX theaters, I think domestically it's eight weeks. If the film starts to wind down toward the end that eight week period, do you have the flexibility with the two titles that you announced today that are designated for international, Bourne and Total Recall, do you have the flexibility to pull them in domestically?

This is Greg, I will answer it. We always have to do what is in the best interest of our theater network and our partnerships, and based on what we know today, it's not -- it's a mute point. It's not something that we're focused on.

Right.

But we always have our sketch pad out and are figuring out what the various Plan Cs, Ds, and Es are, and we would never put ourselves in a position where something is there and not working, nor would our partners ever want us to. It's not something that I anticipate being an issue. This movie is grossing huge numbers. As Rich pointed out we're doing between $3.5 million and $4 million a day during the week.

Right.

This is the sixth day of the film's release and we're doing very nicely. To me, I would sort of, let's see what happens in the second weekend but so far so good.

Okay. Thank you.

We will take one final question, Operator.

Thank you. The last question will come from Martin Pyykkonen of Wedge Partners. Please go ahead.

Thanks. A couple of things. Looking forward as far as the film-based network that you still have with The Dark Knight coming out, 20% at 103 screens or so. Can you give color where those are? I know the Lincoln Square, and the Metreon are the big ones here. Of that 20%, are a large number or percentage of those international and relatively older screens or is it really a mix across the board?

They're all over the world, the BFI, our theater in London is to date the highest grossing screen that we have on the film. It basically sold out for the first 10 days of the film. We have other theaters in the UK playing the film in film. We have a bunch in North America, but it's a global footprint. The film-based theaters do tend to be our, quote older theaters, but they're, you know, those big huge palaces that everyone sort of grew up with, and Chris has designed the movie to take advantage of the 1.4.3 aspect ratio that those theaters provide. People are getting a robust experience in those theaters that they can't get anywhere else other than in the IMAX network. It's again, a global footprint in 103 theaters.

And Greg, I guess a follow-up for you is you obviously deal with all the studios. As they look at the IMAX partnership, particularly on international, you don't have a lot of variability in terms of different films rolling out in different times after domestic, in some cases before domestic -- what the is approach that they take with you? Is there a general methodology to that or is it very case by case, or film by film?

It's case by case, and film by film and opportunistic. The release schedules are often staggered in international markets, and if there's an opportunity for us to take advantage of that, they're up for doing that and so are we. We always keep our commitments. So if we have a film like The Dark Knight Rises, we're never going to put something put in opportunistically outside of the window that we've agreed to. But when you have a movie like Total Recall opening up in September in a market, it makes a lot of sense.

A last one for Rich. On the Latin America thing, not to beat that to death, but from a timing expectation, should we start to think of deals announced in this calendar year? Or do you think it's more into 2013 based on where you're at today.

I'm sure some will be announced during this calendar year, but as I said before, in terms of a significant movement, I think it's more of a 2013 issue. There will be something this year, but it's definitely more 2013.

Okay. Congratulations to Heather, too. You don't have to deal with us anymore.

No, that's not true. We have more calls throughout the day. But thank you, Martin.

Okay.

Again, we really appreciate your support as shareholders. Many of you have been around for a long time. We always said we were going to build out this recurring revenue, growing our network all over the world, increasing the number of Hollywood films, increasing the gross per screen, and I think this quarter is the best evidence yet that we have succeeded in that overall effort. And thanks again, and we will be back to you in the third quarter.

Ladies and gentlemen, this does conclude the conference call for today. You may now disconnect your line and have a great day.